The current market price of a share of stock is $80.

A June put option on this stock has a strike price of $75 and a $20 premium.

A June call option on this stock has a strike price of $85 and a $15 premium.

a. Based on the premiums, what is the markets expectation of the stocks future price movement by June?

b. Diagram the payoff of the buyer of the call.

What are his/her maximum profit and loss in this position?

c. Diagram the payoff of the buyer of the put.

What are his/her maximum profit and loss in this position?

d. Diagram the payoff of the writer of the call.

What are his/her maximum profit and loss in this position?

e. Diagram the payoff of the writer of the put.

What are his/her maximum profit and loss in this position?

f. Diagram a long straddle position.

When would an investor use this strategy?

g. Diagram a short straddle position.

When would an investor use this strategy?

You have an account payable denominated in Euros due in 3 months and are concerned about foreign exchange fluctuations. Are you concerned about the Euro appreciating or depreciating against the dollar? Explain how you can use options to hedge this position.

You are managing a blended portfolio that is largely tracking the S&P 500. Explain who you may consider purchasing a put option on the S&P 500 index to hedge your portfolio.